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The Department of Justice’s U.S. Trustee Program (USTP) has entered into a national settlement agreement with Citibank N.A. (Citibank), Department Stores National Bank (DSNB) (collectively Citi), and FDS Bank requiring Citi to pay $5 million to remediate robo-signed proofs of claim filed in consumer bankruptcy cases in connection with more than 71,000 Macy’s-branded credit card accounts, Director Cliff White of the Executive Office for U.S. Trustees announced yesterday. The proposed settlement has been filed in the U.S. Bankruptcy Court for the Northern District of Georgia, where it is subject to court approval. In the settlement, Citi acknowledges that its affiliate DSNB issued Macy’s-branded consumer credit card accounts. FDS Bank was responsible for account servicing activities and contracted certain bankruptcy-related services to vendors. Between 2012 and 2015, tens of thousands of proofs of claim were filed in bankruptcy cases across the country on DSNB’s behalf. These proofs of claim were improperly signed, under the penalty of perjury, by employees of a third-party vendor who had not reviewed and/or lacked knowledge of the contents of the proofs of claim. In some cases, the electronic credentials of the vendor’s employees were used to file claims where the employee did not review the claim. These improper practices were identified when Citibank took over the servicing of the accounts in late 2015 from the third parties. Citi self-reported the errors to the USTP. Click here to read the court filing. 

New York’s attorney general yesterday sued 10 companies and two executives over their alleged roles in a scam to induce thousands of struggling borrowers into buying student loan debt-relief services that they could have received for free, Reuters reported. Barbara Underwood, the attorney general, said defendants typically charged more than $1,000 for their services, which often came with usurious interest rates, after luring borrowers with false claims such as being affiliated with the government, or that their help was needed. “It strikes me that the lawsuit has merit,” Mark Kantrowitz, publisher of Savingforcollege.com, said in an interview. “There are companies that can take advantage of borrowers’ lack of awareness of what they can do.” The defendants include Debt Resolve Inc. of Hawthorne, N.Y., Chief Executive Bruce Bellmare and his predecessor Stanley Freimuth. Hutton Ventures LLC, a Santa Ana, Calif.-based business partner of Debt Resolve, and Equitable Acceptance Corp, a Minnetonka, Minn.-based financing company, are also among the defendants.

The Consumer Financial Protection Bureau (CFPB) has filed a complaint against Future Income Payments, LLC (FIP), Scott Kohn, and related entities, alleging that the defendants violated the Consumer Financial Protection Act of 2010, 12 U.S.C. § 5536(a)(1)(B), according to a press release. The complaint alleges that the defendants represented that their pension-advance products were not loans, were not subject to interest rates, and were comparable in cost to, or cheaper than, credit card debt when, in actuality, the pension-advance products were loans, and were subject to interest rates that were substantially higher than credit card interest rates. Additional related entities include FIP, LLC; BuySellAnnuity Inc.; Cash Flow Investment Partners LLC; Pension Advance LLC; Cash Flow Investment Partners East LLC; Cash Flow Investment Partners MidEast LLC; Lumpsum Pension Advance Atlantic LLC; Lumpsum Pension Advance Southeast LLC; Lumpsum Settlement West LLC; PAS California, LLC; PAS Great Lakes, LLC; PAS Northeast LLC; PAS Southwest LLC; Pension Advance Carolinas LLC; Pension Advance Midwest LLC; and Pension Loans South LLC. The lawsuit, filed in federal district court in the Central District of California, also alleges that the defendants violated the Truth in Lending Act (TILA), 15 U.S.C. § 1638(a)-(b), by failing to disclose a measure of the cost of credit, expressed as a yearly rate.

The Consumer Financial Protection Bureau faced a legal challenge at the Supreme Court on Thursday to its singe-director format, the Washington Times reported. State National Bank of Big Spring, Texas, along with the nonprofit Competitive Enterprise Institute and the seniors’ advocacy group 60 Plus Association, filed a petition with the high court to hear a lawsuit that seeks to declare the CFPB’s organizational structure unconstitutional. The agency was created in 2010 as part of the Dodd-Frank financial regulatory law. The petition from CEI notes that the bureau has a single director that the president cannot remove from office for policy reasons, that Congress has no control over or oversight of CFPB funding, and that the bureau lacks internal checks or balances of a multimember commission.

A new federal law going into effect in September will make it easier for families to combat a growing problem of identity fraud of minors, allowing them to make inquiries about credit files in their child’s name and freeze a file at no cost, the Wall Street Journal reported. Data-security experts say that children are increasingly targeted by thieves who steal their Social Security numbers to create fake or “synthetic” identities, then open credit cards, take out loans or apply for public assistance. One credit-reporting company, Experian, estimates such identity theft will affect one in four children before they become an adult. The measure on children’s credit is part of a broader banking law that also allowed unlimited, free credit freezes for adults, a response to a massive data breach at Equifax Inc. last September. Last year, the Federal Trade Commission received 14,000 complaints involving identity theft targeting people 19 and younger, about 3.7 percent of complaints for all age groups. But experts say that those numbers may understate the problem because parents are often unaware of children being targeted, and don’t report.

The federal official in charge of protecting student borrowers from predatory lending practices has stepped down, NPR.org reported. In a scathing resignation letter, Seth Frotman, who until now was the student loan ombudsman at the Consumer Financial Protection Bureau, says that current leadership "has turned its back on young people and their financial futures." The letter was addressed to Mick Mulvaney, the bureau's acting director. In the letter, Frotman accuses Mulvaney and the Trump administration of undermining the CFPB and its ability to protect student borrowers. The letter raises serious questions about the federal government's willingness to oversee the $1.5 trillion student loan industry and to protect student borrowers. Frotman has served as student loan ombudsman for the past three years. Congress created the position in 2010, in the wake of the financial crisis, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. As ombudsman and assistant director, Frotman oversaw the CFPB's Office for Students and Young Consumers and reviewed thousands of complaints from student borrowers about the questionable practices of private lenders, loan servicers and debt collectors.

In early 2014, hundreds of employees at Maine’s banks and other financial institutions began learning how to recognize unusual account activity that might indicate fraud or financial exploitation, the New York Times reported. The pilot program went so well that one of Maine’s senators, Susan M. Collins (R), introduced legislation to take it national. The result, the Senior Safe Act, which became law in May, gives banks that accept such training more certainty that they would not be punished for disclosing account information to the authorities. Without that protection, banks and their employees run the risk of being sued by clients, or fined or penalized by regulators. "As baby boomers hit their milestones and retire, there’s been a growing focus on what we can report,” said Robert G. Rowe, associate chief counsel for the American Bankers Association. “The law gives us safe harbor to report suspicious activity.”

A Kansas City-area father and son who prosecutors say ran a fraudulent $227 million payday loan scheme will pay a civil fine of just $1, the Kansas City Business Journal reported. Richard Moseley Sr. and Richard Moseley Jr. will pay the fine as part of a settlement reached on Friday with the Bureau of Consumer Financial Protection. Federal officials say the Moseleys operated a group of companies, referred to as the Hydra Lenders, that made $227.7 million in loans, generating $69.6 million in gross profits, since January 2008, according to a consent order. A bureau complaint alleges that the Hydra Group made loans to consumers that the borrowers had not authorized and charged biweekly “finance charges” indefinitely. Moseley Sr. was found guilty in November of racketeering, fraud and identity theft and sentenced in June to 10 years in prison and ordered to forfeit $49 million. The consent order entered into Friday calls for the Moseleys to forfeit approximately $14 million in frozen assets. A $69 million order to pay defrauded borrowers was suspended. According to the order, the suspended judgment and $1 civil fine were set because of the “defendants’ limited ability to pay.”

The Trump administration is planning to suspend routine examinations of lenders for violations of the Military Lending Act, which was devised to protect military service members and their families from financial fraud, predatory loans and credit card gouging, according to internal agency documents, the New York Times reported. Mick Mulvaney, the interim director of the Consumer Financial Protection Bureau, intends to scrap the use of so-called supervisory examinations of lenders, arguing that such proactive oversight is not explicitly laid out in the legislation, the main consumer measure protecting active-duty service members, according to a two-page draft of the change. The proposal surprised advocates for military families, who have urged the government to use its powers to crack down harder on unscrupulous lenders. The consumer bureau conducted dozens of investigations into payday and other lenders during the Obama administration without any significant legal opposition, and no lenders are currently challenging its oversight based on the law, according to administration officials. The bureau will still bring individual cases against lenders who are found to charge in excess of the annual interest rate cap of 36 percent mandated under the law, and continue to supervise lenders under other statutes. But it will scrap supervisory examinations, which are the most powerful tool for proactively uncovering abuses and patterns of illegal practices by companies suspected of wrongdoing, former consumer bureau enforcement officials said. Read more.

ABI President Ted Gavin of Gavin/Solmonese LLC (Wilmington, Del.) and John Ames of Bingham Greenebaum Doll LLP (Louisville, Ky.), a former ABI President), talked with ABI Executive Director Sam Gerdano about ABI's new Veterans' Affairs Task Force on a podcast. Providing more details on the formation of the Task Force, which also includes former ABI President John Penn of Perkins Coie (Dallas) and former ABI Resident Scholar Jack Williams and Susan Seabury of Baker Tilly (Atlanta), Gavin and Ames discuss what the Task Force aims to accomplish — and ways that ABI members can help. Listen here.

President Donald Trump’s choice to lead the U.S. consumer watchdog survived aggressive questioning by lawmakers yesterday and looked on track to secure a confirmation vote that could come as soon as this month, Reuters reported. There were heated exchanges in the Senate as Democratic lawmakers grilled Kathy Kraninger, a government official, on her role in the administration’s “zero tolerance” immigration policy and questioned whether she had relevant experience to lead the Consumer Financial Protection Bureau (CFPB). Kraninger is a senior official at the White House’s Office of Management and Budget (OMB). She has extensive government managerial experience including at the Department of Homeland Security, which she helped set up, and at OMB where she manages the financial regulation portfolio, according to her biography. Democrats and even some conservative Republicans have said that Kraninger, who is not well known in Washington, lacks relevant consumer finance experience, meaning her confirmation rested heavily on her performance before the Senate Banking Committee. But Republican senators yesterday pointed to Kraninger’s strong government managerial experience, adding she would have the help of consumer finance experts at the bureau if confirmed. Kraninger fended off repeated attacks from Democratic Senators Elizabeth Warren and Brian Schatz, who pressed Kraninger several times to clarify her involvement in the immigration policy that resulted in the separation of more than 2,000 children from their parents. Kraninger said several times she had no role in setting or developing that policy, but added when pushed that she had attended meetings relating to its implementation. Democrats also pushed Kraninger on her familiarity with consumer law, including the Military Lending Act, payday lending, credit card laws and discriminatory lending issues, with Senator Catherine Cortez Masto also forcing Kraninger to say she had no direct experience investigating or bringing legal actions against financial firms.